Three common mistakes of objective-based leadership with OKRs

There are various frameworks and tools which aim to support the efficient definition and setting of high-quality goals. Be it tips about processes, or checklists for measuring the quality of goals - in their core, most of these tools are valuable. However, a closer look into companies using these tools makes it evident that there are various pitfalls. Unconditional compliance with the respective rules can lead to negative outcomes and biases.

Certain rules for successful strategic goal-setting are considered commonly accepted knowledge:

• Goals should be specific, ambitious, and time-bound.
• On top, it needs to be ensured that the activities of an employee support the company‘s goals and are aligned to the goals of the superior.
• For this purpose, goals must be clearly communicated and progress should be monitored regularly.
• All those rules promise measurably higher employee motivation, concentration, and a higher output.

Nevertheless, the most successful organizations stick to this rules only to a limited extent. Particularly for the following three concepts it should be questioned critically, whether they make sense in the company’s distinct.

1. Stretch Goals: Stretch but don’t overstretch

Although stretch goals are successfully applied by leading organizations, such as 3M, Airbus, and Apple, the concept is often misunderstood and improperly applied. The idea of setting radical, seemingly unattainable goals in some teams is almost as often applied as it fails. According to the renowned US-economists Miller, See, and Sitkin, there are two important determinants, which decide about the effectiveness of stretch goals.

Latest company performance: Did the company recently experience successes or did the team rather face setbacks and defeats? The answer to this question has a lasting impact on the employees’ attitude. In successful phases, great challenges are perceived as an opportunity to grow further and to build on the recent successes. However, in a phase of weak performance, stretch goals can exacerbate the situation.

In this situation employees perceive stretch goals rather as a threat and look for quick fixes, which eventually results in chaotic initiatives.

Available resources: Resources, be it on a financial, time, or emotional level, play an even more important role in the decision about the introduction of stretch goals. When managers can experiment with different approaches, ambitious goals might make sense. In such situations, compensating for a failed initiative without getting frustrated is much easier.

Unfortunately, particularly companies in distress and with few resources use stretch goals to change tack. As the Nobel laureates Daniel Kahneman and Amos Tversky show with their “Prospect Theory”, particularly in bad times, executives tend to aggressively take risks.

The analytical framework of Miller, See, and Sitkin offers valuable guidance to avoid an ineffective use of stretch goals.

The culture and maturity of the organization are further parameters which should be taken into account when considering the use of stretch goals. As described in previous articles, employees, especially in Central Europe, have a rather reluctant attitude towards risk and public failure. Therefore, radical goals can lead to demotivation, insecurity, and a defensive attitude among employees, particularly if they have been employed at the company for a long time.

2. S.M.A.R.T. Goals: Smart guidance does not equal smart outcome

Probably every professional has heard about the S.M.A.R.T. acronym and was encouraged to work with the tool. According to this rule, goals should be specific, measurable, attainable, realistic, and time-bound. Despite some variations of this abbreviation the core idea remains the same.

However, an unreflected application of the S.M.A.R.T. concept can lead to problems in the process of setting goals. Too often, the concept is the only tool chosen to support the employees to set goals and to check their quality. While the S.M.A.R.T. test might be suited to analyze the formulation of a goal, or in the case of OKRs of a key result, it provides no information, whether the goal is holistic and makes sense in the company’s situation. Similarly to a spelling correction, the test can help to set correctly worded and dated goals but it does not guarantee that these goals contain valuable content and promote success.

A S.M.A.R.T. goal too often causes employees to indiscriminately assume they set a good goal which does not require further consideration and reflection. In some cases, the S.M.A.R.T. methodology is even used to justify less ambitious, tentative goals. On top, the acronym’s letters A (attainable) and R (realistic) are sometimes used as a pretext to set lower goals and take no risks.

However, executives should place a particular focus on challenging their teams with ambitious goals, since this enables the team not only to be more creative but also to experience clear moments of success, when the goal is attained. Corresponding evidence in research shows that this is the only way to keep performance, development of employees, and innovativeness on a high level. Therefore, the S.M.A.R.T. test should be only a last tool to check, whether goals are correct and complete. The goal should not be used in the initial discussion and definition of goals.

3. Top-Down Goal-Setting: Avoid one-way streets

Many companies still cherish the idea that goals should be exclusively delegated top-down by the top management.

The chief executives or the board of directors begin with the definition of goals for the company. Following these goals, the top management teams define their goals, followed by their teams, repeating the process until each employee has defined his or her goals.

Naturally, nobody in an organization should set goals which contradict or undermine the goals of superordinate teams or the company. However, if the top-down approach is applied too strictly, this leads to serious disadvantages.

• First, it basically means that no organizational unit can initiate the goal-setting process, before the respective superior has defined his goals. Thereby, the accountability for delays or a lack of diligence in the goal-setting process is shifted on the next level.
• Second, there is the risk that important, specific goals, which need to be set for particular employees or teams are neglected, because they do not contribute to superordinate goals at first sight. Therefore, if employees should really take responsibilities for goals and feel involved and motivated, this strict approach has to be split in parts.

Thus, every form of strong restriction or rule in the process of goal-setting should be avoided. As pointed out in previous articles, it makes sense that at least half of the goals are defined in a bottom-up approach. Thereby, executives can orient themselves in their own goal-setting towards the ideas, suggestions and goals of their employees. Of course, the goals of executives and higher organizational levels build the basis for the goal-setting of employees. However, this should not unnecessarily restrict and slow down the employees’ planning and preparation activities.